On 9 May 2022, the Labour Court (the “LC”) considered whether the conclusion of a service level agreement, as a result of the termination of another service level agreement from a previous service provider, to deliver end-user computing services (“EUC services”) triggers section 197 of the Labour Relations Act 66 of 1995 (“LRA”).

The urgent proceedings, which sought declaratory relief, were brought by Dimension Data (Pty) Ltd and two other applicants, namely, Vanity Consulting (Pty) Ltd, Yaetsho Solutions (Pty) Ltd (sub-contractors of Dimension Data).

For purposes of this article, Dimension Data and the other two applicants are collectively referred to as (“Didata”) .

The purpose of the LC application was to determine whether there was a transfer of business from Didata to the first respondent, namely, GWB Technologies CC t/a GWB Technologies (“GWB”) as contemplated under section 197 of the LRA, in respect of the provision of EUC services to the City of Johannesburg Metropolitan Municipality (the “City”).

Background Facts

In 2016, Didata concluded a service level agreement with the City whereby Didata utilised the City’s infrastructural assets, including its Information Technology Service Management (“ITSM”) tool, networking and Microsoft software, and the City’s Outlook email addresses and patching tool. The affected employees of Didata, were stationed at the City’s premises and provided services using their own technological devices.

Before Didata became a service provider to the City in 2016, the EUC services were provided by other service providers from 2000 on nearly identical terms to those concluded with Didata.

The EUC services are delivered in what is colloquially referred to as a ‘tower’, which means that the employees who are engaged in providing the services are dedicated to that function and are not involved in other more broadly IT-related services provided by Didata to the City.

The service level agreement with Didata had been terminated, and, on 1 May 2022, GWB was awarded a tender to deliver the EUC services to the City.

In line with the City’s bid documents, it was initially accepted by GWB that Didata’s (affected) employees would be transferred to the City. This was in respect of the contract that would provide the EUC services to the City.

Although GWB’s position was that it had accepted that the outsourcing of EUC services to GWB triggered section 197, the dispute came about after the non-disclosure agreement was concluded with Didata. To this end, GWB’s stance on the application of section 197 then changed.

After this point, GWB’s representative then peculiarly indicated that “because it would be rendering the EUC services on a 24/7 basis, section 197 would not be triggered”. Furthermore , that “GWB, would however consider offering only 17 of the 48 affected employees contracts of employment on GWB’s terms and conditions”.

Accordingly, this culminated in Didata’s application that came before the LC, which forms the subject-matter of this article.

Legal principles

The issue before the Court was whether the appointment of GWB to provide the EUC services constituted a transfer of a business as a going concern in terms of section 197 of the LRA. In other words, whether the employees in question transferred automatically, i.e. by operation of law, from Didata to GWB on 1 May 2022, when GWB was awarded the contract and took over the provision of providing EUC services to the City.

In considering the matter, the Court here relied on the most recent judgment of Road Traffic Management Corporation v Tasima (Pty) Ltd; Tasima (Pty) Ltd v Road Traffic Management Corporation (2020) 41 ILJ 2349 (CC) (“Tasima”) on the question of whether a change of service providers triggers the application of section 197. In this regard, for section 197 to apply, three conditions (or elements) must be met simultaneously, namely :

• a transfer;
• of a business (the transfer must be of a whole or part of a business);
• as a going concern.

In addressing this question, the Court confirmed that the primary consideration on whether there had been a transfer is the nature of the business. In this case, the fact that the provision of the EUC services constituted a discrete, organised grouping of employees solely dedicated to the provision of EUC services to the City, therefore indicates that there was a business capable of being transferred.

On the requirement of a transfer, the Court leaned on the approach adopted in the case of Unitrans Supply Chain Solutions (Pty) Ltd and another v Nampak Glass (Pty) Ltd and others (2014) 35 ILJ 2888 (LC) (“Unitrans”) which was premised on the following :

“what has been transferred from the outgoing to the incoming service provider, is to have particular regard to any assumption of the right of use of the client’s infrastructural assets, and to whether the incoming service provider is to provide the same services on the same premises, without interruption, to the same client.”

Further, the Court considered the fact that offers of employment had been made to Didata’s employees (as affected) and the fact that the City had expressed its desire for continuity. All these factors considered were indicators of the transfer of a business “as is”.

Additionally, the Court sought to distinguish this matter from the decision of Dimension Data (Pty) Ltd v Omega Digital Services (Pty) Ltd and another (2020) 41 ILJ 2453 (LC) (“Omega”), by stating that in the present case (unlike in the Omega case where the service provider held a “discretion as it deemed fit” as one of the factors), that GWB as a service provider did not have this discretion to provide the EUC services as it deemed fit. As such, given this consideration amongst the other factors, it found that the requirement of “transfer” was therefore proven.

To determine whether the EUC services were transferred as a going concern, the Court held that the determination to be made is whether the business will “remain the same but in different hands”.

In its analysis, the Court found that GWB would take over the EUC services, identical to those previously provided, using the same physical and incorporeal assets as those used by Didata, and using the same intellectual property and institutional knowledge used by Didata. Moreover, GWB would therefore have access to the City’s IT infrastructure (as handed over to it) to enable it to carry on the same activity as previously carried out by the employees of Didata, on the same premises and for the benefit of the same client, namely the City.

Conclusion

In conclusion, the Court found that the termination of the Didata service level agreement and the consequent appointment of GWB to provide the EUC services, entailed that section 197 was triggered. Therefore, the employees affected were accordingly transferred by operation of law in terms of section 197 of the LRA as part of that business from Didata to GWB.

Written by Venolan Naidoo, Partner at Fasken